The Chamber View: Lawmakers poised to renege on tax promises

February 9, 2013

Here in Hawaii, do taxes go back down once they are raised? Surely they do if lawmakers agree to sunset the tax hike (revert it to its prior lower level) when passing the increase, right? Not necessarily.

The Legislature, by Act 61, SLH 2009, increased the transient accommodations tax (TAT) from 7.25 percent to 8.25 percent between July 1, 2009, and June 20, 2010, and to 9.25 percent from July 1, 2010, to June 30, 2015, with the proceeds attributable to the increase used to shore up the state's general fund. This was done despite visitor industry concerns.

At that time, lawmakers said the increase was temporary and wrote into the law that the 2 percent hike would sunset on June 30, 2015. However, lawmakers have become used to receiving this additional income and want to eliminate the sunset provision in Senate Bills 1194 and 1202, heard Monday by the Senate's Tourism and Hawaiian Affairs Committee.

While that is bad and may not surprise you, it gets worse. SB1202 also seeks to further increase the TAT to 11.25 percent beginning July 1, 2013. This is unfathomable and would hurt Hawaii's No. 1 industry at a time when the visitor industry and all who benefit from it are still trying to recover from the recession.

No testimony supporting this bill was shown at the hearing. Yet, the senators present moved it forward, passing the measure unamended. Voting yes were Brickwood Galuteria, Gilbert Kahele, Maile Shimabukuro and Malama Solomon. Voting yes with reservations were Gilbert Keith-Agaran and Michelle Kidani. The only no vote came from Sam Slom. Clayton Hee was excused.

In its overview of the bill, the Tax Foundation of Hawaii noted in its testimony:

* "It should be remembered that in 1974, the Governor's Ad Hoc Commission on Operations Revenues and Expenditures recommended that a tax on hotel rentals be enacted only in the case of extreme emergency."

* "Making the TAT an ongoing source of financing for the general fund, as proposed in this measure, will only lead to increased spending and expansion of government."

* "This measure would make the TAT rate of 11.25 percent permanent. It should be remembered that the TAT actually hurts those who depend on the discretionary spending of visitor dollars. Lodging and its attendant taxes must be paid before there is one dollar to spend on souvenirs, tours, entertainment, and food. Thus, hiking the TAT rate merely hurts the small businesses dependent on the visitors' discretionary spending . . . these are not "free" dollars, but dollars that could be flowing back into the economy to generate additional income for Hawaii's people and creating additional jobs for the community."

* "Lawmakers should remember that a "deal" was made with the industry that the increase was to be temporary to help the state during the recent difficult economic situation. . . . Reneging on that promise sends a loud message that the Legislature is not to be trusted and is a body that does not honor its word."

Hawaii's visitor industry is facing increased competition nationally and internationally, with many creating incentives rather than disincentives to attract more visitors. We need to keep costs reasonable to stay ahead of the competition. Therefore, any measures that increase costs for our treasured visitors and hurt this economic engine should be rejected, but so far that is not happening. Call on lawmakers to kill these detrimental bills.